Income Tax Appellate Tribunal - Bangalore
Autodesk India Pvt Ltd, Bengaluru vs Deputy Commissioner Of Income Tax, ... on 11 September, 2020
IT(TP)A No.2675/Bang/2017
Autodesk India Pvt. Ltd., Bangalore
IN THE INCOME TAX APPELLATE TRIBUNAL
"A'' BENCH: BANGALORE
BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER
AND
SHRI B.R. BASKARAN, ACCOUNTANT MEMBER
IT(TP)A No.2675/Bang/2017
Assessment Year: 2013-14
Autodesk India Pvt. Ltd.
Unit A-4, 'A' Wing, 2nd Floor, Deputy Commissioner of
Divyasree Chambers, Income-tax
Langford Road Vs. Circle-1(1)(1)
Bangalore-560 025 Bangalore
PAN NO : AABCA6924B
APPELLANT RESPONDENT
Appellant by : Smt. Tanmaya Rajkumar, A.R.
Respondent by : Shri Sunil Kumar Singh, D.R.
Date of Hearing : 07.09.2020
Date of Pronouncement : 11.09.2020
ORDER
PER B.R. BASKARAN, ACCOUNTANT MEMBER:
The assessee has filed this appeal challenging the assessment order dated 13.10.2017 passed by the assessing officer for assessment year 2013-14 u/s 143(3) r.w.s. 144C of the Act in pursuance of directions given by Ld Dispute Resolution Panel (DRP).
2. At the time of hearing, the Ld A.R pressed grounds numbered as 3(d), 3(f), 3(g) and 3(h). In ground no.3(d) also, the Ld A.R did not press contentions relating to comparable companies named ICRA Techno Analytics Ltd, R.S. Software (India) Ltd and CG-Vak Software IT(TP)A No.2675/Bang/2017 Autodesk India Pvt. Ltd., Bangalore Page 2 of 10 Exports Ltd. Accordingly, all other grounds, except those are pressed, are dismissed as not pressed.
3. The grounds pressed by the Ld A.R related to the addition made by way of Transfer pricing adjustment. Under these grounds, the assessee seeks exclusion of three companies, viz., Persistent Systems Ltd; Larsen & Toubro Infotech Ltd and Mind Tree Ltd. The assessee also inclusion of two companies, viz., R Systems Ltd and Akshay Software Technologies Ltd., in the list of comparables.
4. The assessee herein is providing technical support services on behalf of M/s Autodesk Singapore to its Associated Enterprises. As per T.P documentation, it has provided various types of services to its Associated Enterprises. We are concerned herewith services rendered under the title "Technical Support Services" and "Research and Development Services". Both these services have been clubbed together as "Software Development Services" segment for bench marking. The turnover of the assessee under Software Development Services segment for the year under consideration was Rs.22.50 crores. The assessee adopted TNM method as most appropriate method and Operating Profit/Operating Cost as Profit level indicator (PLI). Both these bench marking aspects were accepted by the Transfer pricing officer (TPO).
5. The PLI of the assessee was 10%. The assessee selected seven comparable companies and the arithmetical mean margin of those companies was 8,92%. Accordingly, the assessee submitted that its international transactions with its Associated Enterprises are at arms length.
6. The TPO did not accept the Transfer pricing study conducted by the assessee. He accepted only one comparable company of the assessee. The TPO conducted his own search and finally selected following comparable companies:-
IT(TP)A No.2675/Bang/2017 Autodesk India Pvt. Ltd., Bangalore Page 3 of 10 Mark-up on Mark-up Total costs on Total Sl.No. Name of the Company (WC-unadj) costs (WC-
(in %) adj)
(in %)
1. CG-VAK Software Exports Ltd. 20.54 18.03
2. ICRA Techno Analytics Ltd. 17.10. 11.01
3. Larsen and Toubro Infotech 26.06 23.57
Ltd.
4. Mindtree Ltd. (seg.) 18.19 16.67
5. Persistent Systems Ltd. 28.27 24.92
6. RS Software (India) Pvt. Ltd. 17.41 16.38
7. Tech Mahindra Ltd. (seg.) 18.72 16.09
AVERAGE MARK-UP 20.90
Adjusted margin 18.10
The arithmetic mean margin of the above said companies worked out to 20.90%. After allowing working capital adjustment of 2.80%, the TPO determined the ALP margin at 18.10%. Accordingly, he made transfer pricing adjustment of Rs.1,65,69,946/-.
7. The Ld DRP accepted the contentions of the assessee in respect of M/s Tech Mahindra Ltd and accordingly directed the AO/TPO to exclude the same. The Ld DRP retained remaining comparable companies selected by TPO. The directions so given by Ld DRP enhanced the Transfer Pricing adjustment to Rs.1,67,94,970/-. Accordingly, the AO passed the final assessment order by making addition of Rs.1,67,94,970/- towards Transfer pricing adjustment. Aggrieved, the assessee has filed this appeal.
8. The final set of comparables upheld by Ld DRP is as under:-
Sl.No. Name of the Company
1. CG-VAK Software Exports Ltd.
2. ICRA Techno Analytics Ltd.
3. Larsen and Toubro Infotech Ltd.
4. Mindtree Ltd. (seg.)
5. Persistent Systems Ltd.
6. RS Software (India) Pvt. Ltd.
IT(TP)A No.2675/Bang/2017 Autodesk India Pvt. Ltd., Bangalore Page 4 of 10
9. Now, the assessee seeks exclusion of following comparable companies out of the list of comparables upheld by Ld DRP:-
(a) Persistent Systems Ltd
(b) Larsen and Toubro Infotech Ltd
(c) Mindtree Ltd.
The Ld A.R submitted that the TPO has applied filter of minimum service revenue of Rupees One crore. However, he has failed to fix any upper limit on the turnover/service revenue. She submitted that the turnover of the assessee is Rs.22.50 crores and hence the assessee falls under the category of companies having turnover between Rs.1.00 crore to Rs.200 crores. She submitted that the co- ordinate bench has held in the assessee's own case related to AY 2005-06 and 2008-09 reported in (2018) 96 taxmann.com 263 and also in the case of Tavant Technologies India P Ltd (IT(TP)A No.1700/Bang/2017 dated 21.08.2020) has held that the companies having turnover of more than Rs.200 crores could not be taken as comparable companies for an assessee having turnover of less than Rs.200 crores. The Ld A.R submitted that, on application of above said upper turnover filter, the above said three companies would be excluded. Accordingly she prayed for application of upper turnover filter and exclusion of above said three companies.
10. The Ld D.R submitted that the upper turnover filter should be applied across the board and should not be applied on selective basis.
11. We heard the parties on this issue. The question of application of upper turnover filter was examined by the co-ordinate bench in the assessee's own case in AY 2005-06 and 2008-09 (referred supra). The said decision was followed by another co-ordinate bench in the case of Tavant Technologies India P Ltd (supra) with the following observations:-
IT(TP)A No.2675/Bang/2017 Autodesk India Pvt. Ltd., Bangalore Page 5 of 10 "14. As far as ground No.6.5 is concerned, the question boils down on application of turnover filter in choosing comparable companies. As far as excluding the companies on the basis of turnover is concerned, the issue has been settled in several decisions of the Tribunal and has been elaborately discussed by this Tribunal in the case of Autodesk India Pvt. Ltd. v. DCIT in IT(TP)A No.540 & 541/Bang/2013, order dated 06.07.2018. The Tribunal in this decision after review of entire case laws on the subject, considered the question, whether companies having turnover more than 200 crores upto 500 crores has to be regarded as one category and those companies cannot be regarded as comparables with companies having turnover of less than 200 crores, the Tribunal held as follows:-
"17.7. We have considered the rival submissions. The substantial question of law (Question No.1 to 3) which was framed by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) Pvt. Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or fluctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a non- jurisdiction High Court, even though the said decision is of a non-jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of CIT Vs. Pentair Water India Pvt. Ltd. Tax Appeal No.18 of 2015 judgment dated 16.9.2015 has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen IT(TP)A No.2675/Bang/2017 Autodesk India Pvt. Ltd., Bangalore Page 6 of 10 by the TPO on the basis that the IT(TP)A No.1700/Bang/2017 5 companies turnover was much higher compared to that the Assessee.
17.8. In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt. Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co- ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium.
These three decisions also place reliance on the decision of the Hon'ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon'ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determination of ALP under the Transfer Pricing IT(TP)A No.2675/Bang/2017 Autodesk India Pvt. Ltd., Bangalore Page 7 of 10 regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra)."
15. In the light of the aforesaid decision of the Tribunal, ground No.6.5 raised by the assessee is allowed."
Accordingly, we find merit in the prayer of the assessee for application of upper turnover filter. However, as submitted by Ld D.R, the said filter should be applied across the board. Accordingly, we direct the AO/TPO to apply the upper turnover filter and exclude comparable companies, which are having turnover of more than Rs.200/- crores.
12. The assessee also seeks inclusion of following two companies:-
(a) R Systems International Ltd
(b) Akshay Software Technologies Ltd
13. The Ld A.R submitted that the TPO has rejected M/s R systems International Ltd., only for the reason that it adopts different accounting year. The Ld A.R submitted that the Hon'ble Punjab & Haryana High Court has held in the case of CIT vs. Mercer Consulting (India)(P) Ltd (2016)(76 taxmann.com 153) has held that so long as the data relating to the relevant financial year is available, companies ought not to be rejected merely because they follow a different financial year. The Ld A.R submitted that the data relating to this company for each quarter is available in public domain and it can be collated to arrive at the financials relating to the financial year adopted by the assessee company. She submitted that the assessee has already collated the details. Accordingly she prayed for inclusion of this company.
IT(TP)A No.2675/Bang/2017 Autodesk India Pvt. Ltd., Bangalore Page 8 of 10
14. We heard Ld D.R, who submitted that this company may be restored to the file of AO/TPO for examining it afresh. In the written submissions, the Ld A.R has collated the financial details of this company for the four quarters ending 31.3.2013 in accordance with the submissions made by her. The said financial details relate to the financial year adopted by the assessee. In view of the decision of Hon'ble Punjab & Haryana High Court in the case of Mercer Consulting (India) (P) Ltd (supra), the AO/TPO is directed to examine this company by examining the correctness of collation of financial data and also by undertaking FAR analysis. Accordingly we restore this company to the file of AO/TPO for examining the same.
15. The Ld A.R submitted that the TPO has rejected M/s Akshay Software Technologies Ltd on the ground it is functionally different from the activities of the assessee, since it is engaged in providing professional services, procurement, installation, implementation and support & maintenance of ERP products and services. The Ld A.R submitted that the financial results of this company would show that it is earning about 99% of its revenue from software services only. The total turnover of this company is Rs.19.94 crores, out of which income from software services is RS.19.83 crores. The remaining amount of RS.11.00 lakhs was received from commission income and sale of software licenses. The Ld A.R submitted that the co-ordinate bench has examined these aspects in the case of Mercedes-Benz Research & Development India (P) Ltd (2018) (95 taxmann.com 134) and held that this company is a good comparable. Accordingly, she prayed for inclusion of this company.
16. The Ld D.R submitted that the TPO has obtained the details of functions performed by M/s Akshay Software Technologies Ltd in response to the notice issued u/s 133(6) of the Act. The Ld DRP has IT(TP)A No.2675/Bang/2017 Autodesk India Pvt. Ltd., Bangalore Page 9 of 10 also examined the nature of functions performed by this company from its annual report. Both the tax authorities have given a finding that this company is engaged in divergent functions. Accordingly the Ld D.R submitted that this company cannot be taken as good comparable.
17. We heard the parties on this issue and perused the record. We notice that the TPO has obtained information u/s 133(6) of the Act from M/s Akshay Software Technologies Ltd, as per which it is engaged in providing professional services, procurement, installation, implementation and support & maintenance of ERP products and services. In the case of Mercedes-Benz Research & Development India (P) Ltd (supra), we notice that the co-ordinate bench has considered the nomenclature of "income from software services" given under the head "Revenue from Operations" , which mentioned that the Income from software services was Rs.19.83 crores. Now the dispute boils down to the nature of functions performed by this company. It is the responsibility of the assessee to show that both the assessee and the comparable company perform similar functions. Before us, the Ld A.R placed her reliance on the decision rendered by co-ordinate bench in order to contend that this company is comparable. However, TPO has issued notice u/s 133(6) of the Act to the above said company and collected the details of functions performed by it, wherein the nature of activities performed by this company is stated as "providing professional services, procurement, installation, implementation and support & maintenance of ERP products and services". It is pertinent to note that the above said information was given by M/s Akshay Software Technologies Ltd Ltd. However, we find that they are general description of the functions performed. Specific functional details have not been furnished. What is required to be found out is whether IT(TP)A No.2675/Bang/2017 Autodesk India Pvt. Ltd., Bangalore Page 10 of 10 these functions fall under the category of "Software development services", as in the case of the assessee company. Accordingly, we are of the view that this company may also be restored to the file of AO/TPO, so that the assessee would get an opportunity to show that the functions performed by this company and the assessee are similar. Accordingly, we restore this company also to the file of the AO/TPO.
18. In the result, the appeal of the assessee is treated as allowed.
Order pronounced in the open court on 11th Sept, 2020
Sd/- Sd/-
(George George K.) (B.R. Baskaran)
Judicial Member Accountant Member
Bangalore,
Dated 11th Sept, 2020.
VG/SPS
Copy to:
1. The Applicant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR, ITAT, Bangalore.
6. Guard file
By order
Asst. Registrar, ITAT, Bangalore.